Reaffirmed 2nd mortgage, not 1st- want to surrender house

[lkkbk09]

I am reposting- I had this in the "Before Discharge Section". Sorry...


This is kind of a strange situation...

We did not reaffirm our 1st mortgage, but did reaffirm our 2nd in our bankruptcy that was discharged January 09. We have continued to pay on both mortgages up until this point.

However, the 2nd mortgage is (was) a balloon that has come due as of today. I have been trying to work with the Credit Union since October to get this 2nd mortgage refinanced and have get to get an approval. I have been told at least 4 times that they will be getting my approval any day and will set up the closing. I am concerned that they will never be able to get this financed and I am wondering if I really want them to.

I am wondering what would happen if my husband and I decide to give up the house and put the 2nd mortgage into foreclosure, and find an apartment to rent. I have never been involved in a foreclosure situation and am wondering if the credit union that holds the 2nd mortgage can sue us for any money if we just walk away from the house. I know that the house is worth probably $50,000 less that we owe between the 2 mortgages and when I speak with the 1st mortgage, they always inform me that I do not owe the debt, so I am only concerned with the 2nd mortgage. I know that the credit union won't get their money when the house sells because there probably won't be enough proceeds to even pay off the 1st mortgage. What happens to that money that is owed? Can they sue me for that money?

Sorry if this is confusing or redundant.

Thank you!

[justbroke]

Since you reaffirmed the debt, and by definition, you can be sued for any deficiency caused by the foreclosure of the property with some exceptions. Generally, the exception is that you live in a non-recourse State and the 2nd mortgage was obtained at the same time you purchased the home (is a "purchase money" loan).

It appears, based on you saying that the home is worth $50K less than the balance on the first mortgage, that the 2nd would not foreclose. They'll probably write off the loan, then sell it to a Junk Debt Buyer (JDB). You may then be sued for the amount of the 2nd mortgage in civil court.

Short answer, yes, they can sue you. They probably won't foreclose, the first will probably be the one foreclosing. That would certainly leave the second in a bind.

[DeadManCrawling]

I believe they will be coming after you, and there is not much you can do. You can try to negotiate a settlement, but chances of them accepting any such offer are low.

You reaffirmed, or so you state. Is this true? Did you sign actual reaffirmation papers for the second? Or was it only a statement on the list of intentions? I am curious and surprised because I cannot imagine an attorney who would sign off on reaffirming a second. Or a judge.

Something about this just doesn't seem right.

If it's true, and you did reaffirm, here is what I see:

The second is unlikely to foreclose, because the first lien-holder has to be paid. Since the second is in a negative-equity position, they would lose in every respect.

Even though the first was not reaffirmed, they hold the mortgage and lien for the majority or all of the sale value.

however, since you reaffirmed the second, it is now unsecured debt, but reaffirmed. With a reaffirmation, they are now beyond discharge and can hound you for this debt for years. Or they will sell it to a JDB and an endless cycle of collections will ensue. You could TRY to settle with these fools, but that process is notoriously difficult and could result in OTHER problems.

No easy way out, if all these things are true.

But if you don't have the money, you don't have it. I would be talking with them about a settlement. Their recourse, beyond the losing proposition of foreclosure, is to pursue a judgment and levy bank accounts, wages, and put liens on anything else you have equity in. Like cars, or other property. Or future homes and property.

Not an enviable position.

I can't help but wonder about an ethics inquiry and potential lawsuit aimed at the attorney who signed off on reaffirming a second.

Just my thoughts, and others will hopefully make me look dumb and provide a way out.

Also, there are so many good attorneys out there, and some on thos board, but sometimes the worst circumstances collide with the worst legal advice and all hell breaks loose.

[lkkbk09]

Yes, we did reaffirm only the 2nd. The intent was to reaffirm both the first and 2nd to keep our home. However, the mortgage company on the first mortgage was trying to process a foreclosure when we first went into bankruptcy. Due to a clerical error, they thought we were behind on our mortgage, but we were not. So, they never got the reaffirmation paperwork in to our attorney. The 2nd mortgage was one of the first reaffirmations we signed. I really wish we wouldn't have reaffirmed this. This is a big mess now.

I don't know what we are going to do if the credit union is not able to refinance the 2nd mortgage. I am even willing to look at financing this 2nd mortgage as some other kind of loan, but I don't know how to go about that. If they won't finance it against the house, I am not sure we have any other options. Both of our cars are newer and we still owe what they are worth at this point, so we can't put it against the vehicles. We don't have any other assest to use as collateral.

FYI- my husband was a non-filing spouse in this bk and through our recent car purchase, we discovered that 2 of his (our) credit cards were put to collections and show on his credit report as such. We are in WI and all of his debt should have been discharged as well. I have cleared that up in the past couple weeks, but I think his credit may be another problem in getting this refinanced.

I really don't understand why the credit union would be dragging their feet- if they don't refinance us, they really will have a big mess to deal with. Right now, we are willing to continue paying it. I would rather give up the house, but not if we are going to have legal issues.

Thank you for your help!

[StartingOver08]

I think I know why the CU is dragging their feet...if your home's value is less than the outstanding mortgages by $50k, how is the bank going to refinance this second? You might be able to get them to modify the terms of the existing note and mortgage: extend the amortization period, drop the interest rate etc. But this would be a modification and not a true refinance. This would be in the best interest of the CU by the way, not in your best interest.

I agree with DMC, signing off on the reaffirmation was not the appropriate thing to do and your attorney should have provided your options to you at that time. Thank goodness the first did not get their paperwork together in time.

Fortunately you are in WI and WI has excellent consumer protection laws in place. You might want to check into Ch 128 if you find you have to give up the house and need a way to get rid of the 2nd mortgage debt.

[lkkbk09]

I spoke to the mortgage guy this afternoon. He says it will be done this week. I have heard this before, but I asked if this was a problem and he said definitely not. I guess my goal is to get this paid off ASAP so we can get out of this house.

Thank you all for your help!